Hedging involves reducing the risk involved in owning an asset or commodity by making an offsetting sale of that asset. This helps to mitigate losses in case the price of the asset decreases, but it also limits potential gains if the price increases. This is a common strategy used in investment and commodity markets.

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Hedging Consists Of

Question 16

Multiple Choice

Hedging consists of:

A) reducing the risk involved in owning an asset or commodity by making an offsetting sale of that asset.
B) increasing the risk involved in owning an asset or commodity by making an offsetting sale of that asset.
C) reducing the risk involved in owning an asset or commodity by making a big profit on that asset.
D) avoids risk by selling short.
E) none of the above.

Correct Answer: